Scottish secretary hints at softening of Labour's stance on energy windfall tax

Scottish secretary Ian Murray has indicated that the Labour government is preparing to soften its stance on the way it wants oil and gas companies to be taxed when it delivers its first Budget next month.

The government has committed to launching state-owned company GB Energy and headquartering it in Scotland, saying that the business will be financed by the proceeds of the windfall tax it collects on energy company profits.

First introduced under the Conservative government, the energy profits levy will be extended by the current administration in November, when the headline rate will rise from 75 per cent to 78 per cent and run to 2030 rather than 2029.

The government also intends to remove what it terms the “unjustifiably generous investment allowances” that apply to energy company profits and has said detail of that will be announced by Chancellor Rachel Reeves in her Budget at the end of October.

There have been fears that the removal of the allowances, which are designed to help drive the energy transition by encouraging investment into renewables, will stifle investment in the sector, with industry body OEUK warning that £200bn of investment is under threat.  

Speaking at business organisation CBI Scotland’s annual dinner, which was held in Glasgow on Thursday, Murray said the government is consulting with businesses and that the “tax regime is under discussion”.

CBI chief strategy officer Tracy Black told Murray that at a meeting of business leaders held this week concerns had been raised about the message being sent from government.

“We can't really talk about renewables in Scotland, or the opportunity, without talking about oil and gas,” she said.

“At [our] committee this week, and it wasn't actually raised by an oil and gas company or an energy company, but one responsible for major infrastructure, [there were] concerns around the government's direction on the north east, particularly around the investment allowances.

“The point he was making was about that signal, that message about the UK being open and a place to invest.

“For our members, for a large number of business out there, it's about that reassurance that our energy supply is going to be secure, it's going to be affordable for the next 20 to 30 years as we transition, and there’s a worry that there could be unintended consequences [like a] lack of investment into existing infrastructure, the ability for the sector to attract talent in lots of key skills [and the] reliance on gas imports.

“Do you think a balance can be found from the government and for the industry affected or is it going to stay quite as strong and rigid? At the moment, it feels quite difficult.”

Murray said that the Treasury is currently consulting with businesses and listening to their concerns, adding that Reeves will provide “clarity” in her Budget statement.

“Everyone knows that the people who are currently drilling for oil and gas are absolutely going to be the ones that are delivering the renewable energy as well,” he said. “Those skills are in the industry and it's the same companies that are going to be investing in it.

“Everyone gets that the tax regime is under discussion in terms of what it wants to look like, but the goals are the same, and the chancellor's been pretty clear about that.

“That clarity of what the chancellor wants to do and achieve, and that stability, has got to be right at the heart of everything we do in business.

“There has been a recognition that this is difficult, and there is discussion ongoing, and we'll find out on the 30th of October at the Budget.”